Whilst the property was income producing, David claimed a total of $3,300 in deductions in his first financial year.

Thomas decided he wanted to build a new investment property on the same site. In doing so the existing building was demolished and removed from the site. The residual depreciable value of $13,700 became an immediate 100 per cent deduction in the year of demolition.

The key takeaway from the difference between Division 40 and Division 43 is that Division 40 items will depreciate faster. For example, while the building structure (Division 43) can be claimed at a rate of 2.5% over 40 years, carpet (Division 40) in a residential property depreciates at a rate of 20% over 10 years (using the diminishing value method). Hence, the more depreciation; the more tax savings can be made. It is common for people to incorrectly categorise items and therefore it is important to see a tax expert. DKM Accounting and Taxation Services can advise you on how best to go about this while making sure it is ATO compliant and that means big savings for you.